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Speeding up FDIs
The government has allowed foreign firms to invest in Indian stock marketsup to 5 per cent. The move will basically allow portfolio investments byforeign companies and represents a liberalisation of sorts in FDIs as itallows foreign firms an alternative route to bring in funds. But what is aunnecessary is the fact that these firms have to bring in these fundsthrough FIs and not directly. Now, two questions arise. Foreign funds areallowed to invest in Indian stock markets by registering with Sebi and RBI,with the logic being vetting the antecedents of the inflow. Why should allstock market investments not be allowed the same route and the sameflexibility? Secondly, which are the institutions that can act on behalf ofthese foreign companies and will they have the capability to assess theirprospective clients?Instead it would be far simpler to allow these firms entry just byregistration with Sebi and after obtaining permission for investments up toa ceiling from the Foreign Investment Promotion Board. In addition if thepriority is to vet hot money put a minimum time frame within which thatparticular firm should remain invested in the stock market but has thefreedom to switch stocks at will and outside of any time frame. If theobjective is to speed up foreign investment then the relaxation is asensible one even though the suggested method is not very practical. TheNRIs' experience with such portfolio management schemes by which they couldonly invest with concurrence of designated banks in secondary market. Theresult: few NRIs had invested directly in secondary market and mostpreferred IPOs. With similar investment restrictions by foreign firms it isquite likely that there will be few takers here as well. Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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